The constituent factors of corporations or businesses at its early stages are the great amount of labors and assets The labors and assets are so-called tangible assets.
After purchasing the equipment, such as plant and machines, and land, the corporation gains profit from selling the products produced by the labors Therefore, we traditionally assess the character or the profitable capability of a company by its tangible assets. These tangible assets can be measured by the several accounting principles. By the way, these tangible assets can be easily traded on the market. Companies proceed finance acts of the tangible assets to increase the operation flexibility
On the other hand, the value of the intangible assets in companies is gradually beyond the tangible assets. The knowledge, which we called the intangible assets, gradually generates the maximum effort to the companies In other words, besides tangible asset, the intangible assets have become the important factors of a company The intangible assets of a business or a company include different kinds, such as marketing, supply chain, customer relationship, brand, education level of the employees, R&D, company's patent and the quantity of the trademark. The intangible assets and the profitable capability of a company are often positive related especially in a high-tech industry. Take Microsoft for example, Microsoft mainly produces the computer operating system and the software. The computer operating system and software have a high market share in the global market. The generation of these systems are not depends on the land or any other equipment, but the creation of a human being, R&D, and marketing skills. The value of the stock market is 44.6 billion higher than the net asset of the Microsoft in April 1995 according to the statistics A 99' report of Baruch Lev, a professor of financial accounting in American New York University, shows that the profit and the value of a company influenced by the R&D capability which reflected by the quantity and the quality of the patent. IBM is another example indicated that the patent has great influence on the entire profit of a company The income from the license grant of IBM in 1990 is about 300 million, while in 2000 is about one billion. The license grant occupies one-nine of the IBM profit-before-tax. The value of the stock market is 54 billion higher then the net asset of the IBM in April 1995 From the aforementioned cases, we can easily find the influence of the intangible assets.
The intangible assets, such as patents and skills, cannot easily set a trading price as the tangible assets do It is harm for an intangible asset based company for that they cannot get a proper financial assistance by these patents and technologies. Secondly, when transferring techniques or authorizing the patents, the licensor and licensee cares not only the skills and patents themselves but also the value of these patent or skills and the license grant for authorization These economic factors are the key issues whether we can successfully transfer techniques or authorize the patents or not.
There are three traditional valuation methods for evaluating the technique and patents. The Rules of Thumb is the first method. The most common form is so-called the 25 percent Rule The amount of the revenues is contributed and affected by several factors, such as the technique, marketing management, and the combination of the inner-enterprise resources. The contribution of the technique is about 25% of the revenues.
However, according to a statistics report published on the journal of les Nouvelless in 1997, even if the technique causes a raise of the revenues over 80%, the licensee is unwilling to pay more than 15% of the total revenues. Besides, the Rules of Thumb method is based on a unitary concept without considering the difference and the risk between different industries or different technologies.
The second method, as showed in the U S. Pat. No. 6,154,725, is the Rating/Ranking method The method obtains a predicted value of a technique by comparing the present trade information and price information thereof with the previously existed trade information and price information of other similar transaction collected in the technique trade market However, the trade information and price information of previously existed transaction in the technique trade market will usually be hold in privacy. It is not easy to get an appropriate reference sample for this method.
The third traditional valuation method for evaluating the technique and patents is the Discounted Cash Flow method (DFC). The DFC method introduces the Risk Adjusted Hurdle Rate (RAHR, designated by ‘k’) as a mean for characterizing the overall commercial risk. The DFC method converts the forecasted economic life and the net profit of the technique to the future cash flows.
Although the DCF method provides a definite mathematical formula, it has several disadvantages. One disadvantages is that the method have to forecast the sell revenues and the cost of the technique each year within the economic life by human estimation and errors certainly occurred Another disadvantage is that the DCF method can't consider the future risk.